A potential deal between Yahoo and Time Warner's AOL division is unlikely before Yahoo's annual meeting on Aug. 1, a person familiar with the negotiations said Monday.
Yahoo and AOL have been talking about merging their Internet operations for a few months, but the talks now factor in the expected boost to Yahoo's bottomline as a result of its search advertising deal with Google, the source said.
Yahoo had also talked with News Corp about combining operations with the media company's MySpace and other Web assets. But those talks fell apart because News Corp sought a value of as much as $15 billion for those assets, the person said. Talks between the two sides are no longer active, said the source, who was not authorized to speak on the record.
Yahoo said in a statement earlier Monday it was still ready to talk with Microsoft about a full buyout, after Microsoft revealed it was open to buying all or part of Yahoo if the Internet company replaced its board.
The source said Yahoo had sought at least $2.5 billion in guaranteed annual from a partial search deal, but Microsoft was unwilling to pay that much.
Microsoft Ready to Reopen Talks—With a Condition
Microsoft, which broke off talks in early May to buy the Internet company for $47.5 billion, said it would enter into talks immediately if a new board were elected at Yahoo's Aug. 1 stockholder meeting.
Billionaire financier Icahn, a major Yahoo shareholder who is running a slate of candidates to replace the Yahoo board, said in an open letter released on Monday that he had spoken frequently with Microsoft CEO Steve Ballmer over the last week.
"Steve made it clear to me that if a new board were elected, he would be interested in discussing a major transaction with Yahoo," including purchasing either its "search" function with large financial guarantees, or an outright purchase of Yahoo, said Icahn.
Microsoft said it would be premature to discuss details, such as the price it might offer for Yahoo. It's latest offer was $33 per share, but Yahoo demanded $37.
The news sent Yahoo shares up about 12 percent Monday. Microsoft shares were down almost 1 percent.
Icahn has been highly critical of the Yahoo board and its CEO Jerry Yang in recent months, claiming the company "botched" negotiations with Microsoft.
Icahn said he would immediately move to replace Yang if his board slate were elected at the August meeting.